Termination of a non-compete agreement in light of the Covid provisions
Today, we would like to point out to a rather special regulation from the point of view of employers, i.e. the possibility of unilaterally terminating of non-competition agreements after termination of the employment relationship, which was regulated in the Act of March 2, 2020 on special solutions related to the prevention, counteraction and combating of COVID-19, other infectious diseases and crisis situations caused by them (hereinafter: Covid Act).
According to Article 15gf of the Covid Act, “During the period of an epidemic emergency or a state of epidemics announced due to COVID-19, the parties to a non-compete agreement in force after the termination of:
1) the employment relationship,
2) agency contract,
3) mandate contract,
4) another contract for the provision of services to which, pursuant to the Act of April 23, 1964 – Civil Code, to which the provisions on mandate contract apply,
5) specific work contract,
– for the benefit of which the non-compete has been established may terminate the agreement within 7 days.
It follows from the foregoing that the Covid Act gives the possibility to withdraw from the legal relationship, even when the parties have not provided this possibility in the non-competition agreement after the termination of the employment relationship or the termination of the other agreements indicated in the aforementioned provision. This is extremely important, especially for employers, because post-employment non-compete agreements are irresolvable if the parties do not explicitly provide this in the contract.
Conditions of use
The most important points we should take into consideration before deciding to exercise the power provided by Covid Act are as follows:
– the possibility of termination applies only to a non-compete agreement after the termination of the employment relationship or the termination of the other agreements indicated in the aforementioned provision,
– the possibility of terminating a non-compete agreement after the termination of the employment relationship or the termination of the other agreements indicated in the aforementioned provision has been granted to only one party of the agreement (the party in whose favour the non-compete is established, i.e. the employer, the mandator, the orderer),
– the said entitlement is valid by law (it may be exercised by the employer, the mandator, the orderer even if the non-competition agreement after the termination of the employment relationship or other agreements indicated in the aforementioned provision does not provide for termination of the agreement),
– the employer, the mandator or the orderer is only able to exercise the said entitlement during an epidemic emergency or a state of epidemic declared due to COVID-19,
– the need to keep a 7-day notice period.
Also important from the point of view of the employer, the mandator or the orderer is the fact that, when exercising the aforementioned entitlement, the employer, the mandator or the orderer does not have to demonstrate:
– the reason for termination,
– deterioration in hers/his/its financial situation caused by the occurrence of an epidemic emergency or a state of epidemic declared due to COVID-19.
Rationale for introducing the provision
The aforementioned regulation undoubtedly deteriorates the situation of employees, however, the legislator in the justification to the governmental draft act indicated that it is aimed to protecting employers, mandators and orderers, who “faced with the economic consequences of an epidemic, are unable to bear all the costs of doing business. It is therefore reasonable to allow them to terminate the contracts in question. By this, with the expiry of the contract, their obligation to pay compensation – beyond the duration of the contract – will end (…)”